Stealth Socialism

An ObamaCare revelation in a Florida courtroom--and a potential pitfall for free-market reformers.

By

James Taranto

Updated Dec. 17, 2010 12:01 a.m. ET

The constitutional ground on which ObamaCare purportedly stands keeps shifting, raising new questions about whether the law can stand--and also, as we shall see, raising potential pitfalls for free-market reforms of New Deal social programs.

Bloomberg reports on an exchange that took place yesterday in the Pensacola, Fla., courtroom where Judge Roger Vinson is hearing a case in which 20 states challenge the constitutionality of ObamaCare's mandate that individuals buy health insurance:

"They can decide how much broccoli everyone should eat each week?" Vinson asked.

"Certainly," replied Rivkin, an attorney in the Cleveland-based law firm Baker Hostetler LLP.

"We've always exercised the freedom whether we want to buy or not buy a product," Vinson told the Obama administration's lawyer.

[Justice Department lawyer Ian] Gershengorn said health insurance is "a financing mechanism," not a product. "It's not shoes," he said. "It's not cars. It's not broccoli."

Reason's Peter Suderman notes the implications of the government's argument:

If it's really just a revenue-raising mechanism, a way for the government to pay for health care, then aren't they saying that the insurance premiums paid to health insurance companies [are] actually taxes? This is different from the administration's argument that the penalty for not complying with the mandate is a tax. Instead, they're effectively describing the premiums themselves as taxes--financing mechanisms that the government uses to pay for care.

Suderman goes on to fault the Congressional Budget Office for failing to include this "tax" in its analysis of ObamaCare's costs. But there is a more fundamental deception at work here. The claim that ObamaCare is anything other than a government takeover of health care is the lie of the year.

Under the scheme envisioned by ObamaCare, in which insurers would be obliged to cover all comers, a medical policy would no longer be insurance--that is, a contract to indemnify the policyholder against risk. It would instead be, as Gershengorn describes it, a "financing mechanism" for medical services. As Suderman points out, because participation would be mandatory, the "premium," and not just the penalty for failure to pay it, would effectively be a tax.

ENLARGE

In a famous 2003 video, Barack Obama, then an Illinois state senator, declared, "I happen to be a proponent of a single-payer universal health-care program." That is, Obama wished for a system of outright socialization of health-care costs, in which the government would pay for medical treatment using tax dollars. ObamaCare differs from such a system only in that ostensibly private insurance companies act as the government's middleman, collecting the taxes and paying the benefits.

Suderman's better half, Megan McArdle, suggests that this raises a new question about ObamaCare's constitutionality:

Could it possibly be legal to define the health insurance premiums as a tax? As far as I'm aware, it's not legal for a third party to collect and disburse US government tax revenues with relatively minimal oversight, which is what we're talking about here. Not that I want to define our massive health care bureaucracy as constituting "minimum oversight", but there are a bunch of missing controls that we'd require from an actual government agency.

I don't know the answer to this question, so I'm genuinely asking: would it be constitutional to effectively declare that the nation's health insurers are branch offices of the Internal Revenue Service?

We're pretty sure this is a novel legal question--and thus one that may offer an additional line of attack for the lawyers challenging ObamaCare.

There is very little doubt that under existing constitutional doctrine dating to the 1930s, a Canadian-style single-payer system would be constitutional. The government does have the power to tax people directly to pay for federally administered benefits, as it does with Social Security and Medicare. And to judge by his 2003 comments, Canadian-style socialization of health-care finance would have suited Obama just fine.

So why did he and congressional Democrats opt for a complicated, ostensibly private and legally dubious means of accomplishing the same end? Because outright socialism was a bridge too far politically. But ObamaCare's stealth socialism, in which private companies play the role of tax collector so that individuals are forced to do business with them, may be a bridge too far legally.

And here is where things get tricky for free-marketeers. Assume that the Supreme Court overturns ObamaCare on the ground that Congress lacks the authority to force individuals to transact business with private companies. That would seem to imply that requiring individuals to participate in privately administered pension programs or else pay a tax to the government would also be constitutionally suspect. But isn't that the essence of proposals for partial privatization of Social Security?

Elections Have Consequences Congress has averted a punishing tax increase that would have gone into effect two weeks from tomorrow. At the stroke of midnight, the House voted 277-148 to approve the Airport and Airway Extension Act of 2010, Part III, the goofily named tax compromise President Obama announced a couple of weeks ago. The Senate had approved the act 81-19 on Wednesday.

Most of the "no" votes came from Democrats who favored higher taxes, but among Republicans, 36 House members and 5 senators voted against the plan. Most of them were conservative stalwarts, such as Sens. Tom Coburn and Jim DeMint and Reps. Michele Bachman, Steve King and Mike Pence, who objected to Democrat-favored provisions to increase spending, reinstate the death tax (albeit at a considerably lower rate than would have been the case under the old law) and postpone the tax increases for two years rather than cancel them entirely. Some politicians and conservative activists argue that the deal represents a betrayal of the Tea Party movement that helped Republicans sweep to power.

We agree with the substantive criticisms of the deal but are nonetheless pleased with the outcome. Delaying the legislation until the GOP Congress takes power would have meant allowing the tax hike to take effect, and it's not assured that President Obama wouldn't have changed his position and (to borrow the president's own awful metaphor) taken American taxpayers hostage in order to hurt his class enemies.

Besides, here we have a Democratic Congress approving the hated Bush-era tax rates! That wouldn't have happened without the Tea Party-driven GOP sweep in November.

Nor would this: "Senate Democrats on Thursday abandoned their efforts to approve a comprehensive funding bill for the federal government after Republicans rebelled against its $1.2 trillion cost and the inclusion of nearly 7,000 line-item projects for individual lawmakers," the Washington Post reports:

After a day of backroom negotiations, Senate Majority Leader Harry M. Reid (D-Nev.) announced that he could not overcome a Republican filibuster after GOP senators turned away from billions of dollars of so-called earmarks they had sought in the bill.

Instead, a slimmed-down resolution that would fund the government mostly at current levels will come before the Senate, and Reid and Minority Leader Mitch McConnell (R-Ky.) said it will pass by Saturday. . . .

The majority leader's surrender on the spending bill marked a final rebuke for this Congress to the old-school system of funding the government, in which the barons of the Appropriations Committee decided which states would receive tens of millions of dollars each year.

McConnell, a member of the appropriations panel, had long championed his own earmarks to the Bluegrass State until last month. But he mounted a furious, and ultimately successful, effort to reject the omnibus legislation, persuading up to nine Republicans who had considered supporting the bill to turn against it.

Sen. John ["Jay"] Rockefeller (D-W.Va.) is pressing forward on his drive to vote this month on his plan to delay Obama administration climate regulations for two years, threatening to go directly to the Senate floor and force a vote to include it in a catch-all spending bill.

Well, so much for the spending bill, but as the report notes, "Rockefeller's plan may earn more traction in the next Congress, with Republicans controlling the House and narrowing the Democratic majority in the Senate."

Lower tax rates for taxpayers at every income level. The top rate, on taxable income above $379,150, would stay at 35 percent. The bottom rate, on taxable income below $8,500 for individuals and $17,000 for married couples, would stay at 10 percent. Cost: $186.8 billion.

Wait, tax rates stay the same, but the World says they'll be "lower"? How can that be? We suppose if a slut nixes sex in Tulsa, it must be a land of oxymorons.

What's the Matter With Manhattan? We mean New York, not Kansas. Washington Post business columnist Steven Pearlstein, pondering why Republicans oppose higher taxes on "the rich," has an important insight. He notes that for liberals alike, the debate over taxes is in large part "about fairness":

Democrats, of course, focus on the increasingly unequal outcomes being generated by the private economy, the widening gap between the very rich and everyone else. To them, raising taxes on the rich seems like the least that we can do to even things out in a free market that is increasingly arbitrary and unfair. Do the rich deserve a tax cut when 15 million other Americans are out of work and even those with jobs are struggling? Do their children deserve to inherit a life of leisure and luxury? They consider the answers to be morally self-evident.

For Republicans, it's also a moral issue, looked at through a much different lens. For them, the focus isn't on the fairness of income distribution but the fairness of the system that produces it. And part of that calculation involves how much of a person's hard-earned income government takes away. . . .

For years now, liberals have taken comfort in the work of behavioral economists that shows human beings aren't the rational, income-maximizing stick figures they're assumed to be in classical economic models. According to this research, one of the things we care about is fairness, even when the fair thing may not be in our economic self-interest.

That explains why some rich people favor higher taxes on "the rich." But it also answers the "What's the matter with Kansas?" question of why nonrich people don't necessarily favor liberal economic policies. The assumption behind that question is an elitist one: that unless you're rich, you ought to be concerned only with your own grubby interests.

Out on a Limb

"Poverty looms for the long-term unemployed"--subheadline, The Economist, Dec. 16

Lame Drunk In Madison, Wis., as in Washington, a Democratic-controlled legislature has been in "lame duck" session trying to pass liberal policies in advance of a Republican takeover (in Wisconsin's case, of both houses and the governorship). The Milwaukee Journal Sentinel reports the effort has been thwarted:

Democrats officially gave up Thursday on an unusual bid to pass labor contracts for tens of thousands of state workers in a lame-duck session, setting up a likely showdown between unions and Governor-elect Scott Walker. . . .

Outgoing Senate Majority Leader Russ Decker (D-Wausau) and Sen. Jeff Plale (D-South Milwaukee) crossed party lines to vote with Republicans to reject the contracts. The agreements then failed on a 16-16 vote in the Senate, leading Democrats to depose Decker and name Sen. Dave Hansen (D-Green Bay) to serve as their leader for the final two weeks before Republicans take control of the Legislature.

In the Assembly earlier Wednesday, all 17 contracts passed, 16 of them 48-47, with the decisive vote cast by Chippewa Falls Independent Jeff Wood, who was released from jail on an intoxicated-driving conviction to make the vote.

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